THE EUROZONE DECOUPLING….

One of the more controversial ideas I wrote about last year was the decoupling of Europe and the USA. My thinking was that austerity was setting Europe apart from the USA who has not been imposing such austerity and that this divergence was leading to a decoupling of the economies. The more recent PMI reports show this trend becoming more pronounced. Our friends over at Sober Look have more details:

The equity market went vertical this morning on the back of the US ISM Manufacturing PMI coming in stronger than expected (54.8 vs 53 expected).

…What’s striking about this rise in the manufacturing PMI is the divergence between the US and the Eurozone manufacturing trends (chart below). This does not mean the US has decoupled from the Eurozone’s crisis (because manufacturing is still a relatively small component of the US output). But it does provide further support to the forecasts that the US will manage to avoid another recession, at least in 2012.